When people apply for their first credit card the motive is most likely to have ease of shopping (without the need to carry cash) and build a good credit history. But the second time around the objective of getting a credit card changes to a great extent. While choosing the second card people look at rewards and benefits and a higher credit limit.
If it’s been a year since you had your first card, and if you have been using your card responsibly by paying bills on time and in full each month; it may be time to reap the benefits of a second credit card. But if you are in the habit of maxing out your card, or are already struggling with a huge outstanding balance on your first card, or if you are prone to spending beyond your means then applying for a second card may not be a good idea.
Here are some advantages of having a second credit card
Backup option- Imagine what would happen if your card is lost or stolen! If you want to avoid the hassles of using cash for all your purchases till you are able to resolve the situation then get a second credit card soon. Keep it in a place different from the first card so that it is available when you lose your first card. There may also be times when the store person tells that your card isn’t getting accepted due to technical issues. A back up card always comes in handy when your first card is not available or gets declined.
Rewards- Different credit cards come with different kinds of benefits. Some credit cards offer amazing discounts on dining, some give cash backs on groceries, while some give reward points on online shopping that can be redeemed on other purchases. Travel cards are the best bet if you often buy air tickets. So if your expenditure pattern is tilted towards an area where a card offers special benefits, then having such a card to cover for those specific expenses makes sense. That is why people often choose a second card to take advantage of specific reward schemes on the expenses that they make often.
Improve CIBIL rating-Getting a second credit card often works well for people who are looking at improving their CIBIL rating. Here is how a new card affects your CIBIL score. An important component that affects the calculation of Credit score is the credit utilization ratio. This ratio is calculated by dividing the total debt balance outstanding on all the cards with the total credit limit on all cards that a person owns. Getting a new credit card increases your total available credit limit and therefore reduces the credit utilization ratio. An important point to note here is that this strategy helps in raising the CIBIL rating only when the balance outstanding is not allowed to increase. If the credit card holder uses the second card for small expenses and pays back the amount in full each month, it will bolster the CIBIL rating. However if the new card is seen as an opportunity to spend more and take on more debt, then the increase in debt pile may increase the utilization rate and lower the CIBIL rating.
Deal with emergencies– Having 2 credit cards raises your credit limit. Though you may not use your card upto the limit to ensure that you get a good CIBIL rating, having an option gives you peace of mind that you have something to fall back on in case of emergencies. When a sudden medical situation arises where the credit limit on the first card isn’t enough to make payments, then the second card serves as a saviour.
Some key points to remember when you get your second card
Use the card for small expenses and pay it back in full each month to display responsible credit behaviour and improve CIBIL rating. An inactive card will do no good to your score.
Do not use more than 30% of available credit limit on any of your credit cards.
You now have 2 payment due dates to track. Do not forget to make timely payments, as it is the most important factor that affects your CIBIL rating.
A second credit card raises your purchasing power, offers you several benefits along with an opportunity to improve your credit profile. But keep your spending in check and use the card wisely so that it works in your favour.